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REVIEW OF SOCIAL ECONOMY, VOL. LXVII, NO. 3, SEPTEMBER 2009
Socialism after Hayek: A Post Keynesian
Contribution to Burczak’s Theory of Social
Justice
Fadhel Kaboub
Denison University, Granville, Ohio, USA
Abstract The paper presents a brief overview of the basic premise of the
Burczak’s Socialism after Hayek, and shows that Burczak’s ‘‘applied epistemological postmodernism’’ presents a unique unifying ground for heterodox
economics, breaking down traditional barriers between right and left. This new
approach allows us to revisit the Marx-Keynes-Hayek debates in a more
constructive way for a unified theory of social justice. However, we argue that
Burczak’s system does not automatically guarantee full employment, so it cannot
be considered an ideal theory of social justice. A Post Keynesian contribution is
presented in the form of the Employer of Last Resort (ELR) program which we
argue is compatible and complementary to Burczak’s theory of social justice.
Finally, we argue that an adequate system design of the magnitude proposed here
must be infomed by the principles of institutional adjustment as outlined by
J. Fagg Foster.
Keywords: Post Keynesian economics, full employment, employer of last
resort, institutional adjustment
INTRODUCTION
Nearly two decades after the collapse of the Soviet Union, people still argue
about the possibility of an alternative economic system that could have the
advantages of both capitalism and socialism, and yet avoid their shortcomings. Many consider such endeavors just senseless utopias and argue that
‘‘there is no alternative’’ to global capitalism. In Socialism after Hayek,
Theodore Burczak sketches the basic foundations of a society with private
property, social justice, no labor exploitation and no central planning.
Review of Social Economy
ISSN 0034-6764 print/ISSN 1470-1162 online Ó 2009 The Association for Social Economics
http://www.informaworld.com
DOI: 10.1080/00346760802014821
REVIEW OF SOCIAL ECONOMY
Burczak’s ‘‘applied epistemological postmodernism’’ presents a distinctive
unifying ground for heterodox economics, breaking down traditional
barriers between right and left. This new approach gives the economics
profession new grounds to revisit the Keynes–Hayek–Marx debates in more
constructive ways that can lead to the creation of a new unified social justice
theory. This book is a thought-provoking fresh perspective on economic
systems, economic thought, and social justice. It is an eclectic, coherent, and
non-dogmatic critical analysis of several heterodox traditions. This is
pluralism in economics at its best. Skeptics and critics will find Socialism
after Hayek an open-ended project that can be accommodating to other
economic traditions. In this contribution, I shall present an overview of the
basic premise of the book, provide a Post Keynesian critique of Burczak’s
proposal, and close with some concluding remarks on system design and the
importance of institutional adjustment.
THE ESSENCE OF SOCIALISM AFTER HAYEK
Burczak identifies unique features in the Marxian and Austrian traditions
that remain incomplete when taken separately, but when put together à la
Burczak, they can provide a powerful analytical foundation for a new socioeconomic system. Burczak ventures to reunite Marxist and Austrian economics
in a new blend of socioeconomic system; perhaps one that may be called ‘‘sociocapitalism’’, not to be confused with ‘‘market socialism’’. It combines:
(a)
(b)
(c)
Marxian surplus labor creation, appropriation and distribution;
Aristotelian capability theory developed by Amartya Sen and Martha
Nussbaum; and
Hayekian nuanced market theory and epistemological critique (knowledge problems).
Burczak presents a ‘‘libertarian Marxist’’ notion of socialism. He convincingly shows that there can be a meaningful notion of socialism that
addresses Hayek’s epistemological critique (the knowledge problems that
central planners face). Consequently, Burczak demonstrates that the goals of
classical socialism (abolition of exploitation, social justice, and the
satisfaction of human needs) are achievable without the abolition of private
property and without central planning, hence the possibility of socialism
after Hayek. Hayek (1989) thought that the socialist project was overly
optimistic and doomed to fail because it assumed that policymakers and
economists can fully and objectively control all the variables. He argued that
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central planners and economists, like all economic actors, have ‘‘knowledge
problems’’ associated with uncertainty, judgment errors, social prejudice,
and the subjective perceptions that characterize human nature and the
decision making process; all of which strike at the core of the problems of
socialist economies: lack of incentives, information dissemination and
coordination.
Burczak correctly argues that many heterodox economists dismiss
Hayek’s work on political grounds and don’t seriously consider his
epistemological critique. Indeed, Hayek’s critique of the neoclassical vision
of the market remains an unexplored territory for many heterodox
traditions, with the exception of Austrian economics. Even Post Keynesians
who emphasize the role of uncertainty in capitalism and the non-ergodic
nature of economic events fall into the same epistemological trap as
Marxists by assuming that the benevolent state would make the right
decisions and would ensure social justice (Wray and Forstater 2004).
Granted that the Post Keynesian project for social justice is less ambitious
than the Marxist one; but it still aims at achieving full employment and less
unequal income distribution, which lead to equal opportunity and social
justice under capitalism. The more radical Post Keynesians who emphasize
social justice as the primary policy goal would be more inclined to share the
Marxist vision of the state as a progressive social force, and thus, de facto,
would ignore Hayek’s critique.
Burczak envisions socialism after Hayek as a set of institutions securing
democratic, worker-managed firms in a private-property and market-based
economy where ‘‘workplace democracy ends exploitation by enabling
workers to be the initial appropriators of the product of their labor’’
(Burczak 2006: 15). For Burczak, democratic self-management achieves wellbeing through participation and dignity. Here, one might take issue with
Burczak’s definition of exploitation being a byproduct of production rather
than market exchange (Burczak 2006: 107). Hence, self-employed workers
would not be exploited since they own the output they produce and are the
last owners of their labor time. This definition, however, does not recognize
that workers in general are exploited by (global) competitive market
structures regardless of employers. It also implies that a self-employed
individual working 16-hour days because he/she has to pay landowners,
capital owners, and credit providers is not exploited since this is necessary to
have access to the means of production. If we reject this statement, then, for
Burczak, we are implying that such unjust payments constitute exploitation
or social theft, in which case private property would be deemed unjust and
undeserving of payment (Burczak 2006: 106).
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Now, if we accept Burczak’s definition of exploitation, and his proposal to
rid society of it, then we will find a very insightful critique of Roemer’s (1994)
coupon stock market. He also discusses Ackermann and Alstott’s (1999)
‘‘stakeholder society’’ proposal to redistribute wealth. Burczak concludes
that wealth redistribution is more effective than income redistribution
because it enhances social justice by promoting the viability of workermanaged firms. He admits, however, that the market-based worker-managed
post-Hayekian society with private property and Burczakian wealth
redistribution mechanisms, when left to its own devices, does not necessarily
create and maintain full employment. This begs the question: can there be
social justice in a society with systematic involuntarily unemployment? This
is where the Post Keynesian insights on full employment can be
complementary to Burczak’s proposal.
SOCIALISM AFTER HAYEK AND KEYNES
Burczak’s system eliminates ‘‘exploitation’’ and redistributes wealth, but
does not guarantee full employment. Keynes, like Hayek, did not believe that
socialism can end exploitation. He believed that capitalist societies are
inherently prone to recessions, and would not naturally converge to full
employment unless when systematically being managed through fiscal and
monetary policy. A more sophisticated version of Keynes’s insights has been
developed by Post Keynesians working in the tradition of Minsky’s
Employer of Last Resort (ELR). Here, I argue that post-Hayekian socialism
can greatly benefit from a friendly Post Keynesian contribution, and by the
same token I shall invite Post Keynesians to study seriously Burczak’s
proposal.
ELR is compatible with Burczak’s proposal. It is a market-based system
featuring: private property, competition, freedom of choice, and self-interest
(Wray 1998). It recognizes the failure of free markets to deliver full
employment and to provide adequate income and wealth distribution. For
Post Keynesians, the government should be the employer of last resort by
providing employment opportunities for those who are ready, willing,
and able to work at a socially established living wage. As proposed by
Wray (1998), the government will fund ELR projects but will not decide
what the projects ought to be. ELR funding is centralized, but its
management is decentralized. NGOs, non-profit organizations, and local
community groups would apply for ELR grants and receive funding from the
federal government. This enhances capabilities, civic engagement, and
democratic institutions. NGOs may subcontract work to privately-owned
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(worker-managed) firms. By design, ELR jobs will not compete with private
sector jobs since ELR projects are non-profit projects that the private sector
would not normally undertake (environmental projects, local community
development, arts and culture, etc.). ELR also abolishes labor exploitation
by giving workers the option to work in ELR projects, thus setting a floor to
wages, living standards, and working conditions. The ELR employment pool
and the ELR budget would expand during a recession to absorb workers
who cannot find employment in the private sector. Conversely, the program
will shrink when the private sector is booming. Private sector employers can
hire workers from the ELR pool at a premium over the ELR wage and
benefit package. ELR is about setting the wage rate and creating an infinitely
elastic demand for labor, whereas in capitalism and post-Hayekian socialism
the quantity of labor demanded is fixed while wages are made flexible.
Even Hayek would not reject ELR on the grounds that it is a cumbersome
system of central planning. It is citizen-managed at the local community
level. Hayek and advocates of sound finance, however, would question the
ability of the government to finance such a program without causing rapidly
rising inflation. This is where functional finance theory comes into play. A
sovereign government that acts as the monopoly issuer of currency and as the
sole entity that can levy taxes, can always finance its spending by printing
money (Lerner 1947). Money is created when the government spends, and is
destroyed when it collects taxes or sells bonds. Neither taxes nor bonds
finance government spending. The purpose of levying taxes is to create a
demand for the government’s currency and to enhance its general
acceptability. The purpose of issuing bonds is to give the general public an
opportunity to hold a safe interest-bearing asset as an alternative to cash.
Inflation occurs when there is too much money in the system, hence the
crucial role that the central bank plays through its interest rate targeting
policy. If inflation is on the rise, the central bank can sell bonds to withdraw
cash from the system (and to prevent short-term interest rates from diving),
and/or the government can increase certain tax rates. And when the financial
system is short on reserves, the central bank can buy bonds (to keep shortterm interest rates from rising), and/or the government can increase its
spending (to inject more money into the economy). This is the art of
stabilizing an inherently unstable economy. Post-Hayekian socialism would
still face endogenous business cycles and unemployment, hence ELR’s
contribution.
In functional finance theory, ELR can be financed through deficit
spending. The deficit and the national debt simply symbolize the private
sector’s net savings. What matters is not how large the deficit and national
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debt are, but rather their function. In functional finance theory, the function
of the deficit and national debt is to secure full employment, price stability,
and sustainable economic growth. As long as the national debt is
denominated in a currency that the government controls, then full employment and price stability are a matter of fiscal and monetary policy
management (Wray 1998). The only kind of ‘‘planning’’ that is required in
ELR is done at the local community level. It is planning for the needs of the
community and the kind of skills that are available in the local
unemployment pool so that ELR jobs are useful, rewarding, and dignifying.
This adds a key component of Burczak’s capability enhancement proposal in
post-Hayekian socialism. The proposed outcome is an ELR system with a
Burczakian wealth redistribution mechanism: a mixed economy of workermanaged and non-worker-managed firms with private property and upward
mobility opportunities, and with the option of having a decent quality of life
by having access to gainful employment to fuel prosperity. These are the
prerequisites of the new unified theory of social justice.
SOCIALISM AFTER HAYEK AND VEBLEN
Burczak’s book is a grand utopian plan for a superior socio-economic
system, but how do we get there, and how will it actually work? One cannot
venture into mega-institutional design without addressing the big questions
about institutions (in the Veblenian sense), their origins and evolution, and
the process of institutional change. Unfortunately, Burczak makes no explicit
reference to Veblen or institutional economics. In a post-Hayekian society,
habits of thought and routines of behavior (i.e. institutions) would be
dramatically altered. The institution of ‘‘private property’’ would have a new
meaning and purpose. The workings of the business enterprise will be altered
by worker-managed structures. Consumer culture may be different.
Technological innovation will proceed through new mechanisms. Trade
unions, politics, and the government’s role in society will also take new
shapes. How will these new interwoven institutions interact? This is where J.
Fagg Foster’s principles of institutional adjustment (Foster 1981; Kaboub
2007) represent a powerful analytical tool to think about the transition to
and the workings of a Burczakian society.
For Foster, institutional change is rooted in technological determination,
meaning that the pre-existing stock of knowledge and technology within
capitalism must be used in the transition toward a fully functional postHayekian socialism. The present technological base enables us to do certain
things, while preventing us from doing others. Institutional adjustment also
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must be consistent with the principle of minimal dislocation; a gradual
adaptation rather than a shock therapy approach. Finally, institutional
adjustment can only be adequate with a recognized interdependence. Any
action taken in a given segment of society will change the structure of the
entire social fabric. In conclusion, both Post Keynesian and Institutional
economics are valuable partners in Burczak’s proposal to transition to a
post-Hayekian socialism.
REFERENCES
Ackermann, B. and Alstott, A. (1999) The Stakeholder Society, New Haven, CT: Yale
University Press.
Burczak, T. A. (2006) Socialism After Hayek, Ann Arbor, MI: Michigan University Press.
Foster, J. F. (1981) ‘‘Syllabus for Problems of Modern Society,’’ Journal of Economic
Issues 15(4): 929–935.
Hayek, F. (1989) ‘‘The Pretense of Knowledge,’’ American Economic Review 79
(December): 3–7.
Kaboub, F. (2007) ‘‘Institutional Adjustment for Full Employment,’’ Journal of Economic
Issues 41(June): 495–502.
Lerner, A. P. (1947) ‘‘Money as a Creature of the State,’’ American Economic Review
37(May): 312–317.
Resnick, S. and Wolff, R. (1987) Knowledge and Class, Chicago, IL: University of Chicago
Press.
Roemer, J. (1994) ‘‘A Future for Socialism,’’ Politics and Society 22(December): 451–478.
Wray, L. R. (1998) ‘‘Zero Unemployment and Stable Prices,’’ Journal of Economic Issues
32(June): 539–546.
Wray, L. R. and Forstater, M. (2004) ‘‘Full Employment and Social Justice,’’ in
D. Champlin and J. Knoedler (eds) The Institutionalist Tradition in Labor Economics,
Armonk, NY: M.E. Sharpe.
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